The Japanese labour market during the global financial crisis and the role of non-standard work: A micro perspective

https://doi.org/10.1016/j.jjie.2015.09.003Get rights and content

Highlights

  • This paper analyses employment dynamics during the global financial crisis in Japan.

  • It compares between the global financial crisis and the 1997 crisis.

  • It also decomposes the difference into three effects including adjustment technology.

  • It also reports counterfactual simulations.

Abstract

This paper analyses aggregate labour dynamics during the global financial crisis in Japan and the role of non-standard work using micro data. The analysis proceeds in two steps. First, using comprehensive establishment-level datasets for the period 1991–2009, it provides a detailed portrait of the adjustment behaviour of establishments at the micro level. Second, it compares aggregate labour market dynamics during the global financial crisis with that observed during the 1997 crisis and decomposes the observed differences into components that can be attributed to changes in the micro-adjustment behaviour of Japanese establishments, changes in the incidence of non-standard work and changes in the distribution of shocks across establishments. It finds that the incidence of non-standard work has increased considerably, worker turnover is much higher among non-standard than standard workers and adjustments in working-time are less important for non-standard workers. Counterfactual simulations suggest that the employment response during the global crisis would have been smaller if the incidence of non-standard work remained at the level observed during the 1997 crisis. The relatively small employment response observed during the global financial crisis is therefore driven by factors other than the increase in the incidence of non-standard work.

Introduction

During the global financial crisis, the Japanese labour market exhibited a remarkable resilience. This is most clearly illustrated by the low responsiveness of the unemployment rate to the decline in aggregate demand during the crisis, both in comparison with other countries as well as with historical experience. For example, OECD (2012) shows that the response of the unemployment rate to the decline in GDP during the crisis in Japan was among the lowest observed in the OECD area. In addition, the unemployment impact of the crisis also appears to be smaller than what might have been suggested on the basis of recent patterns.2

The unemployment response to the decline in output in Japan was widely expected to be small relative to most other OECD countries since this has been consistently the case during previous recessionary episodes. To some extent, this reflects the importance of the long-term employment system which tends to be associated with a strong commitment by employers to preserve jobs during periods of slack aggregate demand.3 However, the unemployment response was even smaller than expected by professional forecasters and economic observers and seemingly inconsistent with the growing sensitivity of unemployment to outputs shocks during the past 20 years. Indeed, the Japanese labour market had been subject to4 important structural changes since the collapse of the bubble in 1992. The most notable of these was the increase in the incidence of non-standard work, in part as a result of the gradual liberalisation of the market for temporary work during the late 1990s, and this was seen as an important factor behind the gradual rise in the sensitivity of unemployment with respect to output shocks (Steinberg and Nakane, 2011).

The objective of is paper is to increase our understanding of aggregate labour dynamics during the global financial crisis in Japan and the role of non-standard work by using micro data. A number of previous studies have emphasised the importance of using micro data for studying aggregate dynamics in the context of firm heterogeneity or non-linearities in the adjustment behaviour of firms (e.g. Caballero et al., 1997, Davis et al., 2006, Gal et al., 2013). The use of micro data allows taking account of these factors in the present context by differentiating between changes in the adjustment behaviour of Japanese establishment at the micro level (“technology effects”), changes in the composition of workers (standard and non-standard) and establishments (size and industry) (“composition effects”) and establishment-specific business conditions (“shock effects”).

The analysis proceeds in two steps. First, using two alternative comprehensive and nationally representative datasets of establishments for the period 1991–2009 (the Employment Trend Survey and the Monthly Labour Survey), it provides a detailed portrait of the adjustment behaviour of establishments at the micro level. Special emphasis is given to the adjustment behaviour of establishments with respect to standard and non-standard workers. Second, building on this analysis, it compares aggregate labour market dynamics during the global financial crisis with that observed during the 1997 crisis and decomposes the observed differences into components that can be attributed to changes in the micro-adjustment behaviour of Japanese establishments, changes in the incidence of non-standard work and changes in the distribution of shocks across establishments.

The remainder of this paper is structured as follows. Section 2 provides some further background on the way the Japanese labour market has developed before the crisis, and particularly on the rise in the incidence of non-standard work, and uses macro-economic data to compare the labour market adjustment pattern during the recent crisis with that during the Asian crisis. Section 3 sets out the methodological framework to analyse how establishments adjust their labour inputs and to assess the macro-economic implications of any changes in the way establishments adjust. Section 4 describes the micro level data and presents some descriptive statistics. Section 5 presents micro-economic results for the average adjustment behaviour of establishments in the cross-section as well as that across different types of establishments and workers. Section 6 analyses the role of changes in adjustment behaviour, changes in labour market composition and the nature of the shock to provide a better understanding of the aggregate labour market dynamics during the recent crisis. Section 7 concludes.

Section snippets

Labour market developments before the crisis and the rise of non-standard work

Traditionally unemployment in Japan has been low and relatively insensitive to the business cycle. Fig. 1 shows the evolution of the unemployment rate in Japan along with that in Germany and the United States since the 1970s to 2011. The comparison between Germany and Japan is particularly revealing as unemployment rates were very low in both countries in the early 1970s (around 1%), but have evolved very differently since. Although in both countries the cyclical hikes in unemployment that

Methodology

The methodological framework in this paper builds on previous work by Gal et al. (2013) by allowing for different adjustment technologies between different types of firms as well as by Davis et al., 2006, Davis et al., 2011 by allowing for non-linearities in the labour input adjustment technologies with respect to the size of output shocks. The main novelties of the present approach are that it differentiates between standard and non-standard workers and takes account of both changes in

Data

The analysis makes use of two different comprehensive and nationally representative datasets of establishments for the period 1991–2009: the Monthly Labour Survey (hereafter, MLS) and Employment Trend Survey (hereafter, ETS). MLS is a monthly establishment survey, similar to JOLTS in the US, that provides information on employment, gross hires and separations, total hours (and standard and overtime separately), the total wage bill (and, separately, standard, overtime and bonus payments). It

Micro-economic analysis of labour input adjustment

This section presents results on, respectively: (i) the aggregate relationship between labour input adjustment and labour demand shocks; (ii) the role of non-standard work; and (iii) the role of industry and firm size.

Simulation analysis

This section makes use of the micro-economic relationships documented in Section 5 to analyse the adjustment behaviour of Japanese establishment during the global financial crisis. More specifically, it compares the evolution of employment, hires and separations during the global financial crisis (2008Q4–2009Q4) with that observed during the 1997 crisis (1997Q2–1998Q2). In contrast to the macro-level comparison in Fig. 4, the analysis here explicitly takes account of (i) changes in the

Concluding remarks

This paper provides a detailed portrait of the micro-economic adjustment behaviour of Japanese establishments to labour demand shocks which provides the following key insights. First, Japanese employers rely to a very large extent on adjusting average hours changes. This is particularly important in the context of small labour demand shocks, but average hours adjustment remains sizeable also in the context of large total hours changes. Average hours changes account for about 80% of total hours

References (23)

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    This work was supported by KAKENHI (24243035). Permission for the use of the microdata was granted by the Ministry of Health, Labour and Welfare in accordance with the Statistics Law No. 33. All errors are our own.

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    The views in the paper reflect those of the authors and cannot be attributed to the OECD or its member states.

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